DealStreetAsia offers a quick recap of major developments in 2019 for Southeast Asia’s venture ecosystem and some projections for the year ahead.
2019: What changed?
PE/institutional funds eye smaller ticket sizes
The big boys are here to play. Separate from its $12.5 billion fourth Asia-focused private equity fund, KKR is raising a $300 million fund eyeing early-stage Asia deals, Warburg Pincus is “comfortable” writing $30-50 million cheques, while Temasek eyes direct investments in SEA’s “aspiring unicorns” valued between $100 million and $1 billion.
More growth funds in the market
The early VC movers are growing along with their portfolio companies and looking into select, growth-focused funds to tap on the upward trajectory of Southeast Asia’s startups. VCs that have announced growth funds so far include Vertex Growth, EV Growth, Golden Gate Ventures in partnership with South Korea’s Hanwha Asset Management, Kejora-InterVest and Openspace Partners. Others have launched first-time growth stage funds to plug this gap, including Asia Partners and B Capital.
The Series B-C funding gap of 2018 seems to have shifted to Series C-D in 2019, argues Nick Nash of Asia Partners. The Temasek-Google-Bain 2019 report, however, doesn’t see this as a major long-term issue with what it calls “unabated funding support” for startups in the region.
More sector-focused VC funds emerge
Some new ones appeared, signalling more growth, depth and overall maturity among Southeast Asia’s VCs. In 2019, we saw these new entrants: 1982 Ventures, a seed fintech fund started by the former Tryb executives Herston Powers and Scott Krivokopich; Big Idea Ventures, an alternative proteins fund backed by Temasek; Trendlines, an Israeli agritech fund which has set up an Asian accelerator in Singapore; ReefKnot Ventures, which finally closed its logistics and supply chain fund and is open for business.
We first started seeing Southeast Asia’s niche funds in the second half of 2018 with the launch of Tin Men Capital for B2B startups, HealthXCapital for digital health and LuneX Ventures for blockchain and crypto.
SE Asia draws more international money and investors
Southeast Asia is getting a more global mix of investors these days. Paul Allen’s Vulcan Capital and SoftBank Vision Fund set up offices in Singapore in 2019, while Amazon was said to be eyeing an investment in Gojek to make inroads in this region. South Korea’s investors, meanwhile, are buying into Vietnam’s boom market.
2020: Some projections
Fundraising will be a struggle for first-time funds and smaller startups
Winter is coming, they say. First-time funds and operationally young startups are likely to feel the chill as caution trickles through the rungs, says Vertex Ventures’s Chua Kee Lock. Funds with a strong track record will get by with cooler valuations. Startups will have to prove their mettle. The strongest will survive.
Higher scrutiny over profitability at LP and VC level
Thanks to WeWork. Such conversations seem very prevalent these days, according to investors and founders we’ve spoken to. We expect this to carry on into the new year. Markets that were once overheating like Vietnam and Indonesia will begin to see more rational valuations, says Chua.
More or less consolidation?
Certain venture-backed sectors such as payments and e-commerce may see consolidation, but with the amount of capital still left in the ecosystem, this might be a soft landing. Capital deployment will continue and startups will chug on, but with a lot less cash burning and a clearer path to profitability.
The rise of startup advisors
We’ve seen Binny Bansal’s xto10x in Singapore addressing the lack of scale-up experience among Southeast Asian founders. Xto10x also offers SaaS back-end services to help startups cope with tech team shortage. Could we see more of these from more mature ecosystems such as India and China? Perhaps. Southeast Asia could do with more of these.
The big question of exits and returns
2020 will be a year where some of the early funds will have to think about returning capital to their LPs. With many startups still not seeing an exit route in sight, the hot potato lands firmly in the hands of Southeast Asian GPs. We may also begin to see more IPO attempts from guys such as Tokopedia and others. That said, any IPO after the first half of 2020 is going to be tricky, given the US elections in November.
Green/sustainable financing will pick up
Climate change is real, and investors are feeling it. LPs comprising some of the world’s top funds and asset managers are beginning to take a hard look at what green investments and the circular economy should look like. The sector still needs to work on global standards, benchmarking and more transparent reporting, and such conversations will continue into 2020. Southeast Asia may also play an interesting role in producing unique solutions tackling climate change.